Tax conspiracy II

I was very critical of a story in the AFR earlier in the week.

Are we really to understand that the News Corp papers campaigned against the most useless government in modern history just so that the ATO would not appeal a federal court ruling? To prevent that sort of political corruption of the tax system is why the Tax Commissioner in (nominally) independent of government. Winning a case against the ATO in court is hardly a “concession” – a miracle perhaps, but never a concession.

Well today, the AFR in its editorial has a far better version of that story.

The issue concerned paper transactions that allowed News Corp’s Australian subsidiaries to record a $2 billion loss while subsidiaries in tax havens posted a corresponding profit. Tax base erosion from profit shuffling by multinational corporations – especially new media companies such as Google – is a key issue for the G20 finance ministers’ meeting to be chaired by Treasurer Joe Hockey this weekend.

That is a version of the story that should have been told in the first instance. Rather than some dark conspiracy, we could have had an argument about tax base erosion and what, if anything, can be done about it.

Ironically the AFR has been reporting that probably little can be done. Last week it reported:

No government wants their tax base to be cannibalised. Yet this is exactly what could happen if the OECD wins its fight against base erosion and profit shifting (BEPS).

The goal of BEPS, which will feature in discussions at the G20 finance ministers meeting, and the G20 summit in Brisbane later this year, is to eliminate “double non-taxation” among multinationals. In theory, everyone likes it. In reality, getting there may be impossible.

Then just today:

One of the key problems in the fight against BEPS is no government wants to give up its own tax revenue. This problem was highlighted by US Treasury Secretary Jack Lew, who has told his G20 colleagues in an open letter that while the United States remains committed to the war on BEPS, it would not agree to a plan that sees its tax base cannibalised.

So while it strikes many people as being problematic that paper transactions result in huge tax losses, the reality is that those practices are legal under the tax code and government (that has complete control over that code) may have little or no incentive that change the tax code.

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10 Responses to Tax conspiracy II

  1. I just have a problem believing that entities like the OECD and Google that are expressly working together to reimagine a different type of curricula globally that will fit into the stated plans for a public sector dominant economy are having a tiff on this issue. It’s also not like NewsCorp is not aware of it given the activities of their Amplify division.

    It really does seem more likely they are pointing at a fellow oligarch to gain passage while the aim will hit us ordinary peons. If that seems conspiratorial, check this out and then note the Australian govt is cited as one of the funders of the initiative. http://www.un.org/millenniumgoals/pdf/GP%20Backgrounder-General2013_Sept2013.pdf

  2. Token

    So while it strikes many people as being problematic that paper transactions result in huge tax losses, the reality is that those practices are legal under the tax code and government…

    So this is the crap the leftards were going batsh*t crazy over before they heard that the Bolt Report will go for an hour (which they duly went batsh*t crazy over).

  3. Mayan

    Perhaps an eloquent solution would be to impose tax based on accounting profits. Shareholders want them bigger, but they then want them smaller for tax. Caught between competing urges; it could be fascinating.

  4. Andrew Reynolds

    Sinc,
    The other issue here is that the US tax code is so complex (it’s almost as hideously complex as ours) and so full of special interest tax breaks that actually trying to get it to comply with any international agreement on this would be a truly Herculean task. The number of midget rent-seekers that would go on the attack would be enormous.

  5. Sinclair Davidson

    Andrew – yes and on top of that we need to look at how it will then integrate with the web of cross- country tax treaties.

  6. Badjack

    It seems STUCH has caught the Fairfax bug.

  7. Rococo Liberal

    What is this tax code of which you speak, Doomlord?

    In Australia we have tax law.

  8. Sinclair Davidson

    Yeah, yeah. You know what I mean.

  9. Kingsley

    Mayan other option is cash accounting for tax. Capex would be the problematic issue

  10. Peewhit

    Kingsley if you are getting cash tax may not be a problem

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